Wednesday, October 31, 2012

After The Storm.

After the devastation, the markets gave its best shot in a difficult situation. So far it is following the path written. If you remember, we expected the indices to move up and down this week and make a messy bottom. So far SPX has corrected only about 5% from its top but the downturn has persisted for over 40 days now. This in itself is something of a rarity. I see close similarity between now and last April.

And my call for a test of the high is consistent with that topping pattern.  Already some positive divergences are appearing.  Tradersu has forwarded the following link.

However, it would be good to remember that this rebound is going to be short term in nature and unless we see 1480 taken out with conviction and SPX stays above that range for a while, I would consider that as a part of topping process.

For the near term, I would like to share a chart of Presidential Election cycle sent by Tom McClellan.

Again, this chart fits perfectly with my cycle and call. I think Apple is bottoming short term and will test the 50 DMA in the coming days. Gold and silver made some progress from the base. All in all, I am of the opinion that a base of some sort is being built for the next stage of the rally. But for that, we may have to wait till next week.

I hope all you readers are safe and secure. Our good wishes to those who have been badly affected by this storm. At least it gave us respite from the 24 hour politics.

Thanks for sharing my thoughts. Hope you are in cash and cushy and ready for the opportunities ahead of us. 

Before Halle, There Was Vanessa

Most readers would readily acknowledge that Halle Berry is the prettiest African American woman around. But before there was Halle, there was Vanessa Williams. I think Vanessa's story and career are so much more exciting and eventful. Plus she got talent.

Born in March 1963, she made headlines as the first African American woman to be crowned Miss America back in 1983. Fairytale right?! Wrong, she was later forced to renounce her title after Penthouse bought and published naked photos of Vanessa. To me that is a sham. Its like giving the Nobel Prize for physics to Einstein for E=mc2, and then taking it away from him cause he posed naked for Men's Health prostrate cancer issue.

Yes, such titles may have some sort of decorum for behaviour but naked pics are not such a big thing. Its not illegal, even  if you did something illegal like kill somebody ... I doubt they would take away her title. Killing somebody is OK but nude pics are a no-no. What a pretentious Puritanical society we like to think we have - and we like to impose those stupid rules on others instead of trying to live our own lives well.

Never mind, most people in Vanessa's position would have shrivelled into a cave and hid. Not her. In 5-8 years after that she morphed into a wonderful singer with multiple number ONES.

Then she went into acting in movies such as Eraser and Dance With Me. B grade type of movies that did not really let her shine. But its television that caused her star to rise again ... After multiple lack lustre movie roles, she then captured everybody's attention as the self absorbed megalomaniac ex-supermodel Wilhelmina Slater with absolute conviction and aplomb in Ugly Betty. She got 3 Emmy nominations for that.

What a lady, what a woman!

Tuesday, October 30, 2012

Update - Murasaki ts

Some readers must be wondering why my blog has not been updated with the normal frequency. Yes, been busy with Murasaki ts. Since this is my blog, I think I should also chart the journey of starting up a company.

Since the soft launch two weeks back, we have been inundated with a surge in trial users, much more than we anticipated. I was hoping for 200 but we had more than 800 and counting. As for paid subscribers, I was hoping to hit 30-40 by now and the actual figure is doubled that, so I am cautiously optimistic. For all that and my office is still being renovated which is why we are having to hold the Masterclass at cafes.

To have over 800 trial users, I would expect at least a 10% conversion ratio to paid subscribers. We discovered that it is imperative for users to at least attend one Masterclass before deciding whether to sign up for the deal. It appears that the user guide may not be able to provide sufficient grounding on how to use the system more effectively. The classes have been highly successful, in fact some even attend multiple classes as I also share with them how to use the system and naturally the top picks.

Some of you may have had issues with the system. If its response time and user friendliness, it is probably due to the computer you are using. As Murasaki requires quite a bit of CPU and memory, it is imperative that the notebook or PC be less than 3 years old and have at least 2M in memory. It is also critical that you have High Speed Broadband or Unifi to fully tap our system effectively.

While the user guide is a start, most will not be able to appreciate how to use the data effectively without attending a live Masterclass (which are free to all paid and trial users). All our Masterclasses are full (max 10-12 per session). The interesting thing is that more than half will immediately sign up as paid subscribers after the Masterclass. Hence it is our strong belief that one has to attend a Masterclass to fully appreciate how it works.

People who have attended our Masterclass all go away with a strong foundation and ability to interpret and read the data and signals. For the last two weeks, the system has been turning out the following strong signals in stocks such as:
Tiger Synergy (16-17 sen)
TH Heavy (56-56.5 sen)
Mieco Chipboard (43 sen)
Sealink (41.5 sen)

As some of you have mentioned that the location for the Masterclass was a bit out of the way, we have decided to add new locations for Masterclass this coming week. The venues are as follow:

5th Nov 2012, Monday 12:30pm- Starbucks Coffee Cheras Leisure Mall

6th Nov 2012, Tuesday 12:30pm- Starbucks Coffee Empire Shopping Gallery, Subang Jaya

7th Nov 2012 Wednesday 12:30pm- Starbucks Coffee Setia City Mall, Klang

10th Nov 2012 Saturday 12.30pm- Dr. Cafe Solaris Mont Kiara
           Please contact us at our toll free number 1800 88 3788 to reserve your seat as we can only take about 10 pax for each session, first come first serve.

Alternatively, you can go to to get a free 5 day trial to use the system. Again, it is imperative that you attend one of our Masterclass to get the full benefits. We will be uploading videos of past Masterclass (by 6pm today). We are confident of our product and know that its a real game changer, there are dates and times of the videos so you can counter check on the previous readings to see if they perform as well as expected.

Sunday, October 28, 2012

Plunge Protection Team - Urban Legend?

Some may be wondering if they even exist. Well, they do. The Plunge Protection Team is officially known as the President’s Working Group on Financial Markets – was created after the 1987 crash.

It appears to have powers to support the markets in a crisis with a host of instruments, mostly through buying futures contracts on the stock indexes (Dow, S&P 500, Nasdaq and Russell) and key credit levers. And it has the means to fry “short” traders in the hottest of oils. The team is led by Treasury chief Hank Paulson, ex-Goldman Sachs, a man with a nose for market psychology, and includes Fed chairman Ben Bernanke and the key exchange regulators.
PPT was created by Ronald Reagan to prevent a repeat of the Wall Street meltdown of October 1987. Its members include the Secretary of the Treasury, the chairman of the Federal Reserve, the chairman of the SEC and the chairman of the Commodity Futures Trading Commission.

Modus Operandi Of PPT
According to John Crudele of the New York Post, the PPT modus operandi was revealed by a former member of the Federal Reserve Board, Robert Heller. Heller said that disasters could be mitigated by “buying market averages in the futures market, thus stabilising the market as a whole.”

This appears to be the strategy that has been used. Former-Clinton advisor, George Stephanopoulos, verified the existence of The Plunge Protection Team (as well as its methods) in an appearance on Good Morning America on Sept 17, 2000. 

Stephanopoulos said: 

“Well, what I wanted to talk about for a few minutes is the various efforts that are going on in public and behind the scenes by the Fed and other government officials to guard against a free-fall in the markets ... perhaps the most important the Fed in 1989 created what is called the Plunge Protection Team, which is the Federal Reserve, big major banks, representatives of the New York Stock Exchange and the other exchanges, and they have been meeting informally so far, and they have a kind of an informal agreement among major banks to come in and start to buy stock if there appears to be a problem.
They have in the past acted more formally. I don’t know if you remember but in 1998, there was a crisis called the Long Term Capital Crisis. It was a major currency trader and there was a global currency crisis. And they, with the guidance of the Fed, all of the banks got together when it started to collapse and propped up the currency markets. And, they have plans in place to consider that if the markets start to fall.” 

Stephanopoulos’ comments have never been officially denied.

Robert McHugh, PhD, has provided a description of how it works, which seems consistent with the comments of Robert Heller. “The PPT decides markets need intervention, a decline needs to be stopped, or the risks associated with political events that could be perceived by markets as highly negative and cause a decline; need to be prevented by a rally already in flight. To get that rally, the PPT’s key component – the Fed – lends money to surrogates who will take that fresh electronically printed cash and buy markets through some large unknown buyer’s account. That buying comes out of the blue at a time when short interest is high.”
Critics of PPT
If a secret team is interfering in the stock market, it presents serious practical and moral issues. For one thing, it disrupts natural “corrections” which are a normal part of the business cycle and which help to maintain a healthy and competitive slate of equities. More importantly, outside intervention punishes the people who see the weaknesses in the stock market and have invested accordingly. Clearly, these people are being ripped off by the PPT’s manipulations. They deserve to be fairly compensated for the risks they have taken. Moreover, artificially propping up the market only encourages the over-leveraged to continue to believe that the grossly-inflated market will continue to rise. Rewarding foolishness only stimulates greater speculation. The tinkering of the PPT is sure to erode confidence in the unimpeded activity of capital markets.

Where is the “free market”? The “free market” is merely a public relations myth with no basis in reality. Saving the system will always take precedent over ideology. Trust in the free market is wavering. Whatever happened to the idea of completing the “market cycle” and allowing markets to self-correct, whether that meant belt-tightening or not? What about the ethical question of whether government manipulation should be allowed in a “free market”? Also, by what authority do the government and the banks interfere in the futures’ markets and shift momentum from the prevailing trend?
Pragmatism vs Idealogy
The argument is based on the fact that free markets should be allowed to exist. Why? Why is that necessary? Different times in history and financial markets have different roles to play. Fifty years ago a financial collapse is likely to be a localised event, not now. What used to be a self-contained localised event has now gone on to have major global repercussion. Over the last 20 years, markets have not really decoupled but rather in crisis, we have witnessed stronger inter-connectedness and collateral damage.

As a politician, bureaucrat and/or steward of good governance, nobody in those positions would want a total collapse of financial markets, as the rebuilding process may take decades. Maybe there is too much leveraged instruments out there – but that’s a separate issue altogether. It is easy to be critical – to call for total free market movement when there are so many inherent faults within the financial system is simply highly irresponsible. Maybe there is too much leverage now and to allow for unmanaged falls could lead to catastrophes that many economies may not be able to recover from.

We have to acknowledge that there is a herd mentality among certain fund managers and hedge funds even, and collectively they can take huge advantage over the rest of the markets by playing the trends together – who is to say that they are not acting in cahoots sometimes? Hence we do need a power player, to bring sanity back, and not allow any big domination or excessive manipulation by the one group of funds. The existence of PPT also signals as a threat to diminish any potential plans to corner or misguide the markets with criminal intent.

We need PPT
Targeting the Americans for having PPT is very silly. The US has military and global economic leadership, I would expect them to have some sort of PPT. Capitalism yes, but free markets have to be redefined according to the times. The ones who call for total free markets need to broaden the bigger picture. It’s idealogical but not practical. Just like most things in life, who practises pure communism or pure planned economy anymore?

Capitalism, free markets, planned economy are all models based on theories, not absolutes based on religious fervour.

Not many people know that Malaysia has one of the highest GDP percentages being listed, it’s in the high 80s. Other developed countries range from 50% to 70%.

What that means is that many countries’ economic performance have a moderate to very high correlation to financial markets. Say, we have totally free markets and let’s go back to the LTCM 98 debacle. Nobody would have stepped in as the KLSE was languishing in the 500-700 range after the 97 implosion. Now you get another round of financial free markets correction. It would have decimated demand and assets globally. That would caused many stuttering companies and even whole industries to completely be wiped out. The KLSE might even have collapsed to 300, who knows. So we need to think of repercussions, because unguarded corrections could kill off more than we could rebuild.

Yes, the shorts might be dealt a bad deal but its a “lesser evil” kind of scenario here. It’s not just in saving major correctional phases, the PPT could also come in to deflate excessive liquidity by exhorting various central banks to tighten policies or soak liquidity. What we want is to lessen the pendulum swings on both extremes.

Sometimes things are not as bad as they seem.
What About The Subprime Crisis?
Well, the subprime crisis was way too big to even contemplate a PPT operation. Because you were dealing with confidence and the credit markets as we know was seizing up. Lehman Brothers and Bear Stearns were falling like bricks. The Fed was trying to ask any bank to buy them out, but all were knee deep in trouble as well, they couldn't just save one. They tried with Bear Stearns but they had to let Lehman Brothers go, there was no one else willing to buy unless they had a strong guarantee from the government. There was only so much the Fed and Paulson could do. Mind you, there was also implosion with AIG and Fannie and Freddie, it was just too big to save everyone.

It looks like we have reached the zenith for PPT to be workable. It also looks likely that any future crises will also be "too big" for PPT to be effective. Call it what you may but the derivatives side of things have grown so large and cumbersome that the real "exposure" carried on any banks or investment banks have gotton so way out of hand.

To roll back the regulations on "capital requirements" and trading positions now are a must, and stricter regulations, but there are always new fangled instruments and off balance sheet agreements that people are so ingenious to side step the rules.

Thus, the financial markets are not going to get any safer despite more regulations, because we never remember our mistakes. The next bubble or rally comes along and everybody is so well paid in the system that we are not going to be bothered with it (again).

Over the last 10 years, our indexed stocks have been increasingly "owned" by local funds. To a large extent it gets easier to "manage" the index. You and I know that when that happens, we may be tempted to "manage" any untoward events. Not being allowed to correct properly will only mean that we will not be addressing the "gaps in valuations properly", it will also mean we will sweep the "inefficiencies and mistakes" under the guise of a managed index. Beware.

Saturday, October 27, 2012

Messing Up With The Brain.

That’s what the market is doing with bulls and bears. The bottom is in sight but it is going to be a messy short term bottom. I would not be surprised at all to see the markets up one day down the next for the whole of next week.

So far the important support level has held but it is still too early to do bottom fishing. As I had mentioned in my email, till cash SPX closes above 1420 in a convincing manner, there is no reason to go long for even one day. Even after that, if you want to go long, I would recommend that you weigh all the benefits against risks.  Most likely we will see a retest of the earlier high and may even have a higher high but just. I would think that the risk is more to the downside, both fundamentally and otherwise.  We have been here before.

(H/T: Lance Roberts)

I do not normally believe in analogs. Analogs are fun while it works but we cannot make investment decisions based on analogs. But there are other factors like money flow through the banking system, the coming fiscal cliff and even cycles indicate that there are dangers ahead.

One of the respected chart analysts, Peter L Brandt has this chart to show:

The caveat is that this theory is invalid if SPX closes above 1480.

By Mid-November, I expect SPX to push above 1470 but whether it will stay above is the million dollar question.

We will take it one day at a time but now is not the time to be cute or smart. The topping process is on and even if the mid-November top comes by end November, it does not change anything.

That’s all I have for this rainy weekend. For those of you living in the path of the storm, hope you are well prepared. If we have to err, better be on the side of caution, be it a storm or stock market. Stay safe friends.

Thursday, October 25, 2012

Apple Fell From Tree.

Story of the night is the earning miss by Apple. And the cherry on the top is the disappointing results by Amazon. SPX futures (/ES) again tested 1400 after hours and Nasdaq futures (/NQ) tested 2600. Both bounced back from the lows but we have to wait and see the action overnight.

Trading of Apple shares were halted in the after-market when it traded below $600. But the market was not expecting anything great from these two, if I have got the pulse correctly. Right at the point of writing this post Apple was trading at $ 607. There was no dumping as such.

I wrote in the past that once Apple closed below $640, it had more to fall. I think we will not see a trade-able bottom for Apple before the end of the year. This is consistent with my view of the general market. For now, despite the disappointing results, it is poised for a bounce soon. So are the futures.

Today the markets messed up with both the bulls and bears and end of the day both group were confused as hell. The short term cycles are all mixed up and it is going to be a messy bottom in a day or two.  

These days I look at 4 hour chart to get a little bigger picture. The 4 hour chart of /ES is showing 4/5 touches around 1400 level and bounce from there. Obviously this is an important support. As time passes and bears are unable to convincingly break this support, it becomes stronger. Having said that, market always surprises and inflicts maximum pain on maximum number of people. If folks did buy more puts of Apple, we can be sure that Apple will close higher. As per option pain calculator, November Max.pain for Apple is $ 635, which is higher than where it is now. Go figure.

I still think a short term bottom is around the corner. Let us see what the overnight actions and tomorrow bring. And I am still waiting to see whether Nat.Gas gives the sell signal. Today it broke below $3.40 but closed above that line. If there is no sell signal in a day or two, then it will be time to pile on to Nat.Gas.

Sentiments have turned south for gold and silver. Today one newsletter writer bailed out of gold and that may be a good contrarian indicator. My take is that we will see a re-test of the last high by mid-November and if the re-test fails, then we bail out and re-enter by end of the year.

That’s all for tonight. I made some changes in the Ad program. Now we only have Amazon link at the top and no other Ads except the in-line text ads. Hope you will remember the blog if and when you use Amazon.

Thanks for sharing my thoughts. Patience is required for few more days.

Giving Customers What They Want

The headline is seemingly an easily understood concept but one which is rarely practiced by most companies, even big ones. Was on a flight on AirAsia, did you know you can get Chatime on the plane? What a surprising yet decisive move ... To me it tells of the strategy and mindset of Tony and his crew, to continually get the customers what they want. Yes, we still bitch about many things about AirAsia, but overall its a bloody great way to fly cheap.

An example of a company that does not give customers what they want is 7-11 Malaysia, and only Malaysia. 7-11 franchises in Thailand and HK are amazing. You do not just go there because its late and nothing else is open. You go there cause they have things you want 24-7.

Its so obvious that 7-11 Malaysia mostly stocks stuffs that "they can get a very long credit period". Am I wrong here? They probably operate as a cash flow cow, rather than investing in "real products consumers want", we only get to choose stuff whose "manufacturers can tolerate long periods without payment because their products are not so in demand in the first place". Naturally some things they cannot do without such as top tier soft drinks.

Just look at other competing 7-24 operations, they go the extra mile, heck one of them even has vegetables.



Wednesday, October 24, 2012

"Are We There Yet" Redux.

There were some questions from readers about the stock market performance vis-à-vis Presidential elections cycle. The theory goes that price movement in stock market predicts the winner. Logically the incumbent wants to spread the feeling of well being before the voting and “O” has done his best to goose up the stock market with endless liquidity flow. And barring the 50-60 point sell, we are actually closer to the top end of the range. And yet every drop in market is cheered and end of the world is eagerly anticipated. We never believed in this rally (including me) and many have stayed away from the melt up from June. But someone made money and I bet that someone belongs to the Boyz club. With this month long chopping and grinding down, sentiments are bearish. But if the COT EuroDollar chart as shown yesterday is any indication, we should follow the money flow of the TBTF banks.

Today Stock Trader’s Almanac had this chart:

It compares two past Presidential election when the challenger defeated the incumbent. I do not care much about who wins but what I wanted to point out from the chart is that in both cases the market has gone up from this point.

Is it any wonder that cycles are calling for a rally soon?

Today /ES (SPX Futures) tested the 1400 line twice during the day and so far it held. The 1st rebound from here, if it comes tomorrow will fail. And at that point we have to see whether it makes a higher low and whether there is a positive divergence in RSI. I think we will again test this level in a day or two. By that time we will be in the last week of October.

Gold tested 1700 level and held so far. Same with Nat.Gas. It did not go below $ 3.40. If it does not break through $3.40 in a day or two, I will anyway take a long position with  Nat.Gas. The COT positions are bullish.

Although I plan to take a long trade by end of October, I am hesitant to long equities. I think it may be a good idea to Short VIX. Again this would be a trade for 15 days or so and not an investment. I think we will get a decent correction after mid-November, not an itsy-bitsy 50-60 points correction which is about to reverse any-time now.

So we wait for another day and in the mean time day traders pile up on short trade only to be squeezed. Thanks for sharing my thoughts. Remember, cash is also a position.

Companies Buying Back Shares

It looks like share buybacks is back in the headlines again. My blogging life began officially in September 2005, and share buybacks was my very first posting. Seven years on, and the conclusions are still the same.
September 2005: Share Buybacks' Posting
What should investors’ opinion be of these share buybacks? Should companies make known their intentions?

We need to understand first why there is a stockmarket in the first place? First and foremost, it is there to allow companies to raise cheap funds to fund their growth strategies. Secondly, it is to allow for individuals and other entities to participate in the growth of these companies. Other reasons are secondary in nature. A company raises funds to facilitate corporate strategies, hopefully they will make money, preferably higher than the prevailing interest rate (if not, all funds should put money in the bank and close shop). Successful companies may keep accumulating profits to prepare itself for two general reasons: market down cycles, or in order to take advantage of opportunities when there is a market/industry correction/sell-down.

Companies should only indulge in share buybacks when accumulated funds are in excess for the above two reasons. This is because share buybacks will deplete reserves and may not be easily convertible to cash when there is a down cycle or market correction – the time when funds may be needed for those two purposes. Companies doing share buybacks must and should consider this aspect before embarking on the said exercise. Even then, the company can still decide on other options to do with the excess cash – give back to shareholders in the form of dividends or bonus – especially in a matured industry.

Companies raise cash for investing in growth, if they find no good investing opportunities after a prolonged period and cash flow is healthy, the funds should be returned to shareholders. Companies doing share buybacks are basically saying that that is the best way to spend their excess cash. To arrive at that decision, they must be convinced that their share is undervalued compared to their company's prospects. A company’s share price may not reflect its true potential – who knows the company’s fundamentals better than the people running them.

Then we have to look at why management is doing this – is it to improve share price via reducing the free float; and/or improve the earnings per share (but that only happens when they cancel the shares). If a company has to resort to improving their share price by reducing free float, it is usually not successful – a simple glance at the past 2 years' price performance of most of these companies will tell you that. By reducing free float, it is a futile exercise as the company will have to accumulate a significant amount to prop up the share price – that seems artificial no matter how you look at it as the only group really keen to own the shares is the company themselves.

Of course, share buybacks can successfully engineer higher share prices by massively reducing free float but they will have to meet regulations for minimum free float in the market place. The danger is that share buybacks can be taken advantage as “insider trading” by management as it involves market timing – hence the authorities must be more vigilant when it comes to the timing of share buybacks. If a company buyback the shares and do not cancel them, are they waiting to unload when price is higher? That is tantamount to trading in their own shares or having an investment portfolio. Is that part of the company’s normal course of business? Can this activity account for a substantial amount of profit for the company? How should analysts regard this profit – probably not enthusiastically as it is considered as a “one-off.”

It is safe to say that companies should make their intention known to the public when doing share buybacks – is it for future placements to institutions; to be cancelled, if so please state a time frame; not to be cancelled, but to be sold back into the market when price is higher; or to be disbursed as bonus. To me, that is vital information and I believe investors will rate the stock accordingly with the new information.

Bottom line, if it is not going to be cancelled, share buybacks are not really that big a positive in rating the company. Most times, companies who do share buybacks will not see significant improvements in their share price – investors do not rate a company higher because of that as investors are not buying the stock in the first place for various other reasons, and the free float is not really a major reason. Any worthy share buyback has to be cancelled for it to be effective.

Companies not doing that, need to ask themselves more questions as to why their share price is not at a level where it should be – are investors not happy with the management’s vision; is the company not communicating its plans effectively; has the company not been able to chart a credible track record; have the financial results for the company been haphazard or inconsistent; is the company too unfocused or too diverse that nobody even wants to follow/research the company; how is the management track record been in treating minority shareholders; have transactions or deals been really fair to all shareholders or been forced down investors’ throat (oops, getting too specific here) – chances are the stock will be rated properly if the above concerns have been addressed. Hence most share buybacks will not be entirely successful as it is fighting against the “enemy” when the “enemy” is really internal not and not external.

Tuesday, October 23, 2012

Demise Of Financial Bloggers?

Josh Brown ran an article today as to why financial bloggers have gone down in numbers. I found it quite funny and could not resist quoting it here:

“There seem to be fewer regularly-updated, high quality financial blogs these days. Many have simply disappeared or have gone inactive. And very few new ones of note have come along to replace them.
But why?”

 Then he goes on to give some theories:

Many bloggers have simply been so completely dead wrong about the post-crisis period we've been in (Hyperinflation! Depression! Social Unrest! Hoard Water and Dry Goods!) that they simply have no audience left. Keep in mind that many of the 2008-2010 generation of bloggers were misanthropes who had been rooting for a collapse all along. They came out of the woodwork and began blogging motivated by a mixture of I-Told-You-So schadenfreude and the desire to predict the next crisis, which was obviously an imminent thing. Only it didn't happen (I know, I know, any day now). And having blown all of their personal credibility on failed Cassandra-ism, having recognized what a horrendous disservice they've done to those who've heeded them, they've simply moved on. Many went to Twitter instead where there is a less permanent record of their bullshit.

But the biggest rant blog is still going strong.
That brings me to my post. The collapse of USA is not yet imminent. And come to think of it, so far it is just a 50 point correction in SPX. But already folks are behaving as if the end is near. And when the real stuff comes up, there would not be many to take advantage of it.

We all know the fundamentals sucks and earnings are crappy. And retail has started buying puts like never before. It happens without fail. Retail will sell at the bottom and buy at the top. The equity put/call volume ratio across all 10 options exchanges ended at 1.05, with roughly 7.46 million calls and 7.86 million puts traded.

My 2 cent contrarian thinking:
VIX closed outside its BB today , 1st time after April 2012.

And SPX closed 2 Standard Deviation below mean, outside BB.

If we see a green day tomorrow, it might be considered as a VIX buy set up.

I do not expect a rally from tomorrow; rather I expect a sideways movement from here till end of the month.
One of the things I follow with interest (apart from my cycles) is the COT Eurodollar indicator as shown by Tom McClellan. He has some complex formula whereby he moves the whole thing ahead by 12 months. I do not understand how it works, except it gives a clue to what the Banksters are thinking and where the money is going. Few days back,the following chart was shared in SHJ’s blog by one of his readers.

So the Boyz have planned all the ups and downs all along!

What I like most about this chart is that it matches with my cycle analysis. It also agrees with the Bradley dates. So we may have to wait a bit more for the Armageddon. Don’t buy the dry foods yet.

At least I have no emotional trauma to bear because I am on the sideline.  So I leave you with some thoughts and cautions. It’s raining here in Toronto. The fall leaves are almost gone. They say that winter will be difficult this year and I still have not been able to get in Nat.Gas. It refuses to give a sell signal. But I am patient.

Thanks for sharing my thoughts. Stay frosty folks. 

Monday, October 22, 2012

Cairo Confidential

Wanna feel like Indiana Jones? Here’s just the place for you ....

A diversion from the norm. Four years back I had the opportunity to go to Cairo. It was part business and some post-conference partying. That was when I still had a 9-5 job. Well, after the uprising in Egypt and ouster of Mubarak, no one should be visiting Cairo anytime soon till things settle down. I am so glad I was there before the whole thing blew up.
The long ride from the airport to the hotel was an eye opener. If you thought the drivers in Malaysia and Thailand were nuts, wait till you get in a car in Cairo. They cannot drive without their horns for sure. Cars slide in and out of lanes like well oiled machines. After ten minutes, I found a way to de-stress myself, just keep looking out the side windows, don't look ahead.

Crossing the roads would be a cinch for Malaysians as we are so used to dancing and weaving through the traffic – Malaysia's national sport? The difference being, its less stressful crossing the roads in Cairo than in KL. At least motorists in Cairo do not accelerate just as they have spotted you trying to cross the road. I have always wondered why Malaysians do that – do we really want to kill or scare the daylights out of pedestrians?

The buildings are in all shades of brown. I asked a colleague why is that and he explained that the buildings were brown, not by design, but as a result of the dust from the desert. Eventually, all the buildings ended up looking the same.

Egypt is an Islamic nation but you can easily find good places to drink yourself silly. Most hotels have a small casino (ten tables or less) but they are opened to foreigners only – still an interesting fact. And it has a fair share of dancing – there's dancing during dinner and at hotel lobbies, people simply break out in song and impromptu dancing in celebration. Extremely refreshing, to say the least. 

Walking around on the tourist trail, visiting the pyramids, the sphinx and museums can easily delude one into believing he or she is having an Indiana Jones moment. You almost feel like stealing some treasure or rescuing some maiden. 

The first impression, like most first impressions of things so widely talked, written and read about ....  is that the pyramids are much smaller than what you had envisioned in your mind. They are barely 10-12 stories high. 

The highlight of my trip was the camel ride. Its not the pussy 5-10 minute camel ride, mind you.

When the bus pulled up to this group of 70 camels and their drivers, I thought it was only going to be a five-minute joy ride and photo opportunity. But hey, it was the real deal. Imagine riding in a huge pack of 70 camels for 45 minutes traversing across the desert. Imagine Lawrence of Arabia leading a band of troopers to conquer some tribe.

In the distance you get to see the setting sun and images of the pyramids as well. That was golden. Many of my friends have warned me about the ruthless camel drivers who will try and fleece you for huge tips at the end of the ride. I was prepared for that.

My guide was a boy, probably 15, or 16 tops. The funny thing was he tries his best to “connect” with his customer with his limited English.

Here was the best memory from the trip. He kept asking me “Are you happy?” ... the first couple of times, I gave my polite short answers. When he gave me the same drivel for the tenth time, I lost it. He was like an old zen master disguised as a young camel driver. For the first few times, you'd answer “Yes, I am happy” but when continuously prodded on, you start to ask yourself “Am I really happy?”
You laugh out in sheer frustration, but against such a glorious backdrop you cannot help but marvel at the same question. 

Here I was on a camel ride watching the sunset, feeling a bit like Lawrence of Arabia, in the historical land of Moses ... seeing the sphinx and the pyramids in a distance ... If you are not happy NOW, right here, when will you ever be? 

But isn't happiness a lot more than just that? Do I have a happy soul? Am I really content? The temporary grandeur and material comforts fade into obscurity. Wow. It was more than just a camel ride (which in itself was excellent). Thanks to my “zen master”, I now “know” that I AM happy.

If you get the chance to go to Cairo, book yourself into one of 3 better hotels on the Nile (the Four Seasons, Hyatt and Sofitel). The room rates have not exploded yet and are about the same as in Malaysia. Funnily, there are about 5 casinos within 5 hotels in Cairo. They are not huge, open only to foreigners. Only 10 odd tables per hotel, but its fun to be in a casino (half empty) with table all to yourself.

Naturally you should go to any one of their museums, its incredible but go to one is more than enough unless you are a big historic buff.

One should also go on a dinner cruise on the Nile. It's frightfully romantic and serene. To think that things existed centuries ago in this exquisite historic city added layers of connectedness and warmth to the experience.

Not all things are wonderful, many of the retail outlets operate much like Petaling Street – you have to bargain like hell. Taxi fares are highly negotiable and many of the tourist destinations will be full of “modern day pirates” – plenty of people dressed in ancient Egyptian garbs wanting to take photos with you for free. But it's never free. 

In that sense the Egyptians are actually fighting with Malaysian taxi drivers for the trophy as the worst place on earth to get a cab. Not a place for two ladies, go in a group of 3-4 for safety in numbers.

 It was a unique experience to go to one where it is still very Egyptian and very local. I was never one to go abroad and clamour for McDonalds or KFCs but honestly, I found myself dying for some KFC after the fourth day. As it turns out, there is only so much of hummus, chickpeas, kebabs and bread one can consume. Can't wait for things to get better to go back to Cairo again.

Indices Dig Out Of Hole.

The selling momentum of last Friday continued for better part of today but the last hour was a good turnaround. DOW covered more than 100 points to close in green. In terms of chart pattern let us see the favourite of the Boyz, /ES or emini (SPX futures).

The following is a 4 hour chart of /ES

This is the 2nd time /ES has bounced from 1420 level which is a good support and the last breakout happened from here. The next line of defence is 1400 level.  And the indices still held the low of 10/12/2012. The cash SPX actually bounced off the lower BB and is sitting just above the 50 DMA. Possibly the bears are allowed only up-to this much for now.

The fundamentals are not that great. With corporate profits down and fiscal cliff hanging in front, there are quite a bit of distributions going on for the last many trading days. Most likely smart money is getting out before the uncertainty hits home. But the last bit of shenanigan is still ahead of us and the Boyz will melt up the market for at least one more time. Therefore it is time for patience and not the time for taking positions. I plan to take a long position by end of October but not in any stock or indices. In my view, the least risky trade would be short bond and therefore TBT.

As you know I am long term bullish on Gold and Silver. But if Gold and Silver do not make new highs by mid-November, it may not be a bad idea to step out for a short while. However, if you are not checking your investment portfolio everyday and are comfortable to hold it for a long term, then there is no need to hop in and out.  In fact every weakness is an opportunity to scale in.

Nat.Gas did sell off today. From $3.65, it closed at $3.44. Yet it has not given the sell signal. It has to close below $3.40 for a meaningful correction. I am waiting for it to correct some more for a good entry.

Coming back to short term equities cycle, the 1st reading had bottom around 24th October. Subsequently, 24th October inverted to top and cycle bottom moved to end of October. In situations like these, it is screaming confusion and the best course of action is no action at all. The crystal ball is fairly clear after 29th/30th October till mid- November and that is when I plan to take a long shot for a short while.

Hope you have been in cash and cushy. Cash is the king in times like these. Good opportunities are ahead of us and we have to keep our emotions in check. If you were long, hope you did not close your position because it will turn around very quickly. Problem is, none of these turn around are for real.

We may see some more selling in a day or two but it does not matter. Unless the bears break down 1400 with conviction in the coming few trading sessions, we are looking for a swing high around 1480-1500 range by mid-November.

That’s all for this Monday evening. Thanks for sharing my thoughts. Be safe out there please.  

Sunday, October 21, 2012

Tips For Investors.

I have couple of tips for Relaxed Investors:

1.       Remember that Investment if different from TradingThe successful investment strategy differs markedly from trading.  It is especially important to establish good, long-term positions when prices are favorable. Most individual investors seriously underperform long-term results by selling low and buying high.  Most successful professionals, of course, do the opposite.
             Even successful years have significant drawdowns.  15% is not unusual.  The investor needs to   expect this.  If it feels stressful, then your asset allocation is wrong.
(H/T Jeff Miller)

2.       Realize that we are no expert on world events: However much ZH or some such blog or various talking heads on TV explain why the world is going to end soon, world is not going to end that easily. Investing based on bear talk can be harmful to the portfolio. World may or may not end tomorrow but investing based on personal belief is not a good strategy.

One of my favourite strategy is to have patience and remove the fear of missing out from the mind. I have not been active in the market for the last few months. During these times, market has gone up and down many times in the most unpredictable fashion. Nothing and nobody can say with any degree of certainty which direction the market will move next. Why take the burden of emotional pain in such a market? So I am looking for what would be a long term trend and trying to get in slowly for a long haul.

For next week, my 2 penny advice would be the same. Patience and do not chase either way. Monday we may see some more selling to start with but an eventual bounce. The market would chop around till end of October. Gold most likely would form a bottom around 24th-25th October. And thereafter a longer term up trend (relatively speaking) for equities till mid-November.  Let us see how things develop.

Thanks for all your support and kind words. Have a great Sunday folks.

Saturday, October 20, 2012

Presented Without Comments

Problem With Comment Publish

For some reason I am unable to publish all the comments in Blogger.
But I want to acknowledge and say thanks to all of you for expressing your support.

Friday, October 19, 2012

51 Shades Of Red.

50 shades for the market, 1 for me.

In the morning call of Friday morning I wrote the following:

As I wrote last night, DOW has been down last 6 straight and 7 of the last 8. That should tell us that we should expect the market to close in red. How deep the colour of the Red is to be seen. It would be foolish to venture an opinion on OpEx day.

It now turns out that the shade of the Red was very deep indeed. It now seems that the indices are making a triple top, if there is something like that in the dictionary of TA. But fear not. It is not the start of the waterfall that we all are waiting for. It is just a symptom of a sick market. Sometime back I wrote that a complex topping process is going on. And because of these weekly ups and downs, it is impossible to trade let alone invest in this market. That is why my conclusion in Friday morning was; Trade Safe, Invest not.

I have done this hop on hop off trade in the past. This is not swing trade. For a swing trade we need somewhat longer term trend which is absent from June. If anyone tells you that s/he is making money in this market day trading or swing trading, s/he is either lying or lucky. My guess, it is the former.

Readers know that we were expecting a pull back since last two days but the degree of pull back surprised everyone, including me. Now we have to see if the low of last week holds. Today’s sell off was triggered by earnings or lack of it. (Although I would say Cycles) let us hope next week the earnings come out better.(because cycles are up till 25th October). So far the DOW and SPX have stopped at 50 DMA as if that’s all the bears are allowed. The Fed has said that they will prop the market no matter what and $40 billion a month have just started coming in.

After the cycle top around 25th October, the next short term low is around end of October. And the important cycles all go up from there. That also matches with the Bradley Date and the COT Euro dollar chart of Tom McClellan. I do not want to guess how low the market can or will go from here till 30th October, but I may take a swing at some longs between end of October and Mid-November. If you remember, I am on the sideline, neither long nor short.  By the way, despite the sell-off, there is no confirmed sell signal from the major indices yet. It may change if we have more selling next week but we will cross the bridge when we come to it.

That made your 50 shades of red market. Now, my 1 shade of red.

In the morning Google very kindly notified that my Adsense account has been closed. Naturally I was very disappointed. But out of 1000s of readers, so far 10 have stood by me and have said that they will support me in every whichever way. Thank you ladies and gentlemen. I have never met you in person and yet you have extended your generosity to an unknown blogger. That I have 10 unknown souls by my side, makes me realize how lucky and blessed I am. I feel that I have achieved my goal.

But God has a funny of showing love. When s/he closes one door, s/he opens ten others. Blogging was never going to be my profession or livelihood. I do it because I love it and as I had some more time in hand, I started spending that here. Making my work of love a paid or subscriber model, will not give me sufficient money to justify my time yet it will alienate most of the readers. Charging $15 per month to 50 or even 100 readers will not allow me to live and yet that will tie me up with huge responsibility. So I have decided to let the blog be as it is. Free for all.

I have signed up with another company called BidVertiser who do the same thing as google but on a scale of 1 to 1000000. So I will do whatever I can to generate Ad revenue and then there is Amazon link which I hope readers will use during the holiday season.

I will be making my regular evening post and sharing my views on investments and market. The Weekly Market report (WOF+) is going for a premature death because readers don’t think it is worth any money. Let life continue as it was, without any bells and whistle.

That sums up the eventful week and the 51 shades of red. Have a great weekend folks.

Intra-Day Update:10/19/12: 12 Noon Eastern

Not looking good. let us see where it closes.  This can go up equally quickly. Don't panic or chase please.

Intra-Day Update. 10/19/12; 11AM Eastern

Personal disappointments aside,
Let the market action continue, SPX is not that bad. Nasdaq is testing its earlier low.
I would not chase it either way for now.
Patience folks.

Morning Call. October 19, 2012

First we had Apple sell off and now we have Google sell off. These two are the staples of most hedge funds. These funds will be under water for sure and what they will do to improve their monthly report is not very clear yet. Some may now try to get out the tech. stocks and chase small value beta. In short there will be instability in the market for whole of October.

Euro Summit decision has now been pushed to November. Everyone is waiting for the US Presidential election to get over to wash the dirty laundry. There is a fight between Germany and France about banking supervision. Spanish bailout issue is hanging and Greece debt fiasco is nearing its end. I do not see it being resolved in favour of the Greeks.

But the market seems to ignore all the above issues. In USA companies after companies (Chipotle, IBM, CAT, Nike, Intel, ……) report lower earnings and weak guidance. These are big names and yet DOW / S&P 500 marches on. This is the power of liquidity. I can only guess how long this will go on and I have given my best estimates of the timeline before. As of now we should be up till mid-next week.

Futures:  DOW futures are down about 40 points but Nasdaq does not look that bad. Down only about 5 points. SPX is down about 3 points and is well above any danger mark. Today is OpEx day. Any move is to be discounted as a part of the shenanigan of the big boyz who sell premium. As I wrote last night, DOWn has been down last 6 straight and 7 of the last 8. That should tell us that we should expect the market to close in red. How deep the colour of the Red is to be seen. It would be foolish to venture an opinion on OpEx day.

Commodities:  Overnight gold and silver sold off. Silver was worst hit, down 1.35% but gold is holding an important level. I expect a rebound here. Let us see how far the rebound goes till next week. Crude was higher with a gain of 0.25% and so did Nat. Gas. Therefore it would be wrong to say that the market is in “Risk-off” mode. It is just the manipulators switching money from one sector to another.

Earnings & Economic data: Today we have release of existing home sales. Additionally, General Electric (GE), McDonald's (MCD), Baker Hughes (BHI), Edwards Lifesciences (EW), Honeywell International (HON), Ingersoll-Rand (IR), McMoRan Exploration (MMR), and Schlumberger (SLB) are scheduled to release their quarterly reports.
In fact GE has already come out with the numbers and has reported an increased earnings of 8.3% while revenues are down. GE shares are down 2% in pre-market.

Conclusion:  I am standing aside. Expect a roller coaster ride throughout the day. Trade safe. Invest not.
Note: Starting today, all intra-day updates will be released through the blog posting and link tweeted. No more direct twitter.  

Why diversification doesn't work

You're standing in your canoe, on a beautiful Canadian lake, taking photos of the wildlife, occasionally fishing. Why standing, not sitting? Well, you've read about those disturbing studies that show how sitting is really bad for your long term health; how every hour of television viewing, for example, takes about 20 minutes off your life expectancy, and why the same is probably true for sitting at the computer, sitting reading a book, whatever. So you're standing and that's OK because you're balanced and stable, with your weight distributed uniformly.

Of course, anyone with even a few minutes of experience in a canoe knows this isn't as safe as it seems. What really matters isn't how well-balanced you are when the canoe rests peacefully, but what happens when a few waves come along, kicked up by rednecks passing in a souped-up bass trawler (I lived in rural Virginia for several years, so I know the experience). As you shift your stance to stay upright, and the boat shifts, that balanced distribution vanishes and you can easily tip. Stability demands balance in the midst of the boat's dynamics, not only in the static peace beforehand.

As it turns out, this same lesson applies to investment portfolios -- a new paper in Nature Scientific Reports shows just how important this insight may be.

Famously, of course, Harry Markowitz introduced the idea of diversification into investing back in the 1950s (at least he formalized the idea, which was probably around long before). Using information on the mathematical correlations between the returns of the different stocks in a portfolio, you can choose a weighted portfolio to minimize the overall portfolio of volatility for any expected return. This is maybe the most basic of all results in mathematical finance.

But it doesn't work; it suffers from the same problem as the balanced man in the canoe. This is clear from any number of studies over the past decade which show that the correlations between stocks change when markets move up or down. If the market suddenly plunges downward, you would hope that your well-diversified portfolio, invested as it is in stocks that tend to move unlike one another, would be OK. But when markets move significantly down (or up), it turns out, the correlations are no longer what they were. Trending markets induce strong correlations among stocks that aren't there beforehand, and aren't obvious from long-term averages. So the risks to a portfolio are actually much larger than the simple diversification analysis suggests -- just as the risk of a canoe tipping is much more than it seems to a man standing balanced on a peaceful lake.

The new paper by physicist Tobias Preis and colleagues makes this point with probably the largest data set used so far, looking at the stocks in the DJIA over about 70 years. It's a fairly simple analysis (modulo some nitty gritty details). Roughly, they look at the correlations between different stocks in the DJIA and see how these correlations depend on the recent average return of the DJIA. Are the correlations stable? Or do they go up as the market begins to move? The figure below showing the average correlation coefficient versus the return indicates that the result is clearly the latter: a trending market, in either direction, induces significant correlations among the DJIA stocks.

One of the interesting things here is that this link holds on many different timescales, from 10 days up through two months. The worrying thing for an investor, of course, is that these correlations make the risks of large losses significantly larger than they would appear to be on the basis of long-term correlations alone. As the authors conclude:
... a “diversification breakdown” tends to occur when stable correlations are most needed for portfolio protection. Our findings, which are qualitatively consistent with earlier findings42, 44 but quantitatively different, could be used to anticipate changes in mean correlation of portfolios when financial markets are suffering significant losses. This would enable a more accurate assessment of the risk of losses.
 As any canoeist knows, dynamics really matter.

Thursday, October 18, 2012

Possibly The Best Indian Mamak Rojak

Trying not to say this or that is the best anymore ... taste is so subjective. However, many of you would swear that this ROJAK place is the tops. No need to argue, the queue says it all. Be early (3pm) and the queue will always be at least 5-6 people deep, be late and you will enjoy an even longer line.

Rojak is rojak, it all comes down to the "fried stuff", how crunchy and flavoursome, and their keropok is something else ... its thin and when you dip into the sauce, its magic. The other main ingredient for a good rojak is the sauce, not too sweet with the right chilli kick.

Market Wrap Up: October 18, 2012

The morning call was again on the money on all counts. SPX pulled back till 1452 against the wishful target of 1450 but closed down a tiny bit. The conclusion part of the morning call said “no reason to be bear”. Dow was also down a small amount but the biggest loser was Nasdaq and that’s a story which will be discussed 1000s times in main stream media and other intelligent blogs. So we will give it a pass here. Bottom line, readers of this blog knew and possibly was prepared for the pull-back.

Day before, in Options+, in bullish ideas, LEN was mentioned. Today it is up 1.5% in a down market. Market thinks that housing has turned around and good luck to those who believe in tooth fairy. But if you are reading between lines, may be you have come across this news:

One of the first big hedge funds to try to profit from a rebound in the U.S. housing market by investing in foreclosed homes is looking to cash out, even as other institutional investors are still getting in.
Och-Ziff Capital Management Group LLC, the $31 billion hedge fund led by Daniel Och, recently told its investment partner, 643 Capital Management, that it wants to exit from the foreclosed homes business, said several people familiar with the matter.
The hedge fund is looking to make a profit on a portfolio of about 300 foreclosed homes in northern California that were acquired at distressed prices, said the sources, who did not want to be identified because they were not authorized to discuss the matter.

Really smart folks will get out of this housing mess while others rush in. I think US housing is far away from finding a bottom and another 20%-30% drop by 2014 is definitely on the cards. Only this time, US would not be alone, Canada will join the party.

Regarding tomorrow, it is OpEx. The picture is cloudy. Stock Trader’s Almanac is indicating that tomorrow is bullish. On the other hand October OpEx, Dow down straight last 6 times and last 7 of the 8.  But today both SPX and VIX closed in red. Bonds were down as well. Normally that would mean a green day next day. And then we had the Google fiasco. I think it could be a roller coaster ride tomorrow but knowing that the cycle is up till middle of next week, even if we see indices weak during the day, it could be buying opportunity. Normally I avoid taking any position on OpEx and Fridays. Unless there is some very compelling  reason, I do not see why there should be an exception tomorrow. As usual, I will tweet through out the day as I see it .

Today one dear reader asked about Apple. If you remember my earlier call on Apple, I said that if Apple closes below $640, there are problems ahead. Apple did close below $640. Now it is due for a bounce and we might see a possible test of its high along with the general market melt up around mid-November. However it may not close above $675. Its trouble is far from over and I expect Apple to test $ 500 by end of the year. While discussing prices, please keep the time period in mind.

Commodities showed reasonable strength today. Gold and silver did not lose much ground and held their earlier lows. But Nat.Gas refuses to give the sell signal. Oil could be due for a short term bounce. 

The Options + was in its 2nd day today. Already we have quite a few trade idea and over 700 page views in less than 2 days. That shows that there is an interest in short term trading. But I want to emphasize again that investors with a longer term view should avoid it. That is preciously the reason I have set it up separately. As you can see, I am spending lots of time here in the blog and your continued help/support is absolutely essential.

Invite your friends to join the readership and Join me in Twitter (@bbfinanceblog)for the real time market updates and calls.  Now you have two more blogs to visit: and . And please send your feedback and comments.